Property prices in Hungary have risen over the past year, after six years of falling prices. The national house price index rose by 6.68% (7.42% inflation-adjusted) during 2014, according to the Hungarian Central Statistical Office (KSH).

Prices of existing dwellings rose by 8% (8.75% inflation-adjusted), while prices of new dwellings rose by 1.39% (2.09% inflation-adjusted).

House prices in Budapest rose more than the national index, increasing 6.88% (7.63% inflation-adjusted).

The market is recovering. Housing transactions were up 17% in 2014, more dwelling permits were issued, and there was increased demand for credit especially for second-hand sales. The recovery is expected to continue during 2015, with GDP growth of 2.7%, a continuous rise in rents, as well as a recovery in the activity of developers.

Some parts of the housing sector remain weak: the share of newly-built homes in the market remains low, with a decline in new dwellings built during the latest quarter (Q1 2015), and bad loans remain high.

During Hungary’s housing boom (1998-2007), house prices soared by 264% (102% inflation-adjusted). However, the market started to fall in 2008, mainly due to the global financial meltdown.

House prices in Budapest dropped significantly between 2008 and 2013, according to the KSH:

Gross rental yields, i.e., the gross return on investment in an apartment if fully rented out, range from 5.35% to 7.97% in Buda, while in Pest rental yields are even higher, ranging from 6.89% to 8.30%. These are quite attractive yields.

The average prices per square metre (sq. m.) of apartments in Buda, the greener side of Budapest, range from EUR 1,280 to EUR 1,900, with an average price of around EUR 1,400 per sq. m. In Pest, the business and commercial centre of Budapest, average prices per sq. m. are a little higher.

Smaller apartments tend to be cheaper (on a per square metre basis) both in Buda and in Pest.

Rents in Buda range from around EUR 7 to EUR 10 per month per sq. m., whereas in Pest, monthly rents per sq. m. range from around EUR 8 to EUR 11.

Rental Income: Net rental income is taxed at a flat rate of 16%. When computing for taxable income, income-generating expenses are deductible from the gross rent.

Capital Gains: Net capital gains are taxed at a flat rate of 16% in Hungary.

Inheritance: Death duty is imposed at progressive rates and the applicable tax rates vary depending on the relationship of the beneficiary to the deceased. In case of lineal descendants, there is no inheritance duty on legacies.

Residents: Resident individuals are taxed on their income at a flat rate of 16%.

Roundtrip transaction costs are around 7.09% to 14.21% of the property value. Transfer tax is levied at progressive rates, from 2% to 4%. Real estate agent’s fee is around 3% to 5% plus 27% VAT. First transfer of property is subject to 27% VAT.

Hungary’s rental market is generally pro-landlord. New tenancies in Hungary are generally unregulated, with the exception of state and municipal property.

Rents: The parties are free to negotiate rents, and to negotiate the method of any increase in rent that they may wish to devise. The deposit, its rate and other conditions can be freely agreed by the contracting parties.

Tenant Security: The tenancy agreement may be concluded for a definite term, or an indefinite term, or until the occurrence of a certain condition defined in the agreement. The landlord must give a termination notice to the tenant prior to the expiration date of the contract.

The Hungarian economy has performed well this past year,with 3.6% GDP growth in 2014, the second highest output increase in the EU, following 1.5% growth in 2013 and a 1.5% contraction in 2012.

Economic growth has been driven by internal demand, more notably, investment growth boosted by “Funding for Growth Scheme” of the Hungarian National Bank (MNB) and the EU Funding. Household consumption has also boosted growth, though weak external trade is a problem.

The “Funding for Growth Scheme” aims at increasing lending to businesses, and reducing companies’ exposure to foreign currency denominated loans. Under this program, commercial banks can get up to HUF250 billion (US$1.1 billion) in interest-free loans from the NBH, while companies can get the same amount to convert their foreign currency denominated loans to forints. The program was launched in April 2013 and started in June of the same year. The program was expected to finish on August 2013, but the central bank decided to extend the scheme until end of 2014. The extension would see the bank offer HUF 2.5 trillion (US$ 8.9 billion) in interest-free funding to commercial lenders. In addition, the NBH plans to use €3 billion (US$3.82 billion) of its foreign currency reserves to help local banks cut their short-term currency debts.

In GDP 2015 growth is expected to be 2.7%, followed by 2.3% growth in 2016, according to the IMF. This is due to an expected general improvement of the global economy, which will also benefit Hungary’s main trade partners (i.e. Euro-zone), as well as due to rising household consumption.

Recent economic growth has boosted the popularity of Prime Minister Viktor Orban and his government - despite being accused of authoritarianism by some groups and countries, including the European Union and the United States - propelling him and his party, Fidesz (the Hungarian Civic Union) to victory in the 2014 elections. Fidesz, a national conservative political party, won 133 seats, followed by Unity with 38 seats, Jobbik with 23 seats, and LMP with 5 seats. Orban is expected to carry on his government’s current programs after being re-elected to the same postion for the third time.

During Orban’s second term as prime minister, his government was able to alter the National Constitution, reducing the number of Members of the Parliament (MPs) from 386 to 199.

From 1997 to 2006 Hungary enjoyed robust economic growth of about 4% per annum. Then in 2007 growth slowed sharply to 0.51%, and 0.88% in 2008. In 2009 GDP shrank by 6.6%, Hungary's worst economic contraction since 1991. In October 2008 the government was forced to ask the International Monetary Fund (IMF) and the European Central Bank (ECB) for a rescue package worth US$25 billion to prevent the Hungarian economy from collapsing.

The economy returned to growth in 2010, with real GDP growth rates of 0.8% in 2010 and 1.8% in 2011. However it contracted again by 1.5% in 2012, amidst high debt, high unemployment and the Eurozone debt crisis.

The efforts made by Hungary to reduce its deficit under 3% of GDP has earned it permission from the European Commission to exit the Excessive Deficit Procedure in 2013. The country’s fiscal deficit in 2014 was only 2.6% of GDP, after a deficit of 2.5% in 2013, and 2.3% in 2012. Meanwhile, gross public debt was 76.9% of GDP in 2014, down 0.5% from the previous year.

Hungary’s unemployment was 7.8% in Q1 2015, a 0.5% decline from to the same quarter last year. In May 2015, consumer prices rose 0.5% y-o-y.

Good yields in Budapest

Low to moderate transaction costs

The law is pro-landlord

Minor ownership restrictions

Moderate to high rental icome taxes

RESIDENTIAL PROPERTY FACTS

Price (sq.m):
€1,528 For a 120 sq. m. property, usually an apartment.

Rental Yield:
7.55% For a 120 sq. m. property, usually an apartment.

Rent/month:
€1,154 For a 120 sq. m. property.

Income Tax:
18.72% Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income.

Roundtrip Cost:
10.65% The total cost of buying and then reselling an apartment. Includes: